Are Politics and Government Regulation Still Weighing on the Recovery?

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Small business optimism finished the year higher in December, but weakness in consumer spending shows the economic recovery is questionable at best. The National Federation of Independent Business, the leading non-profit small business association representing small and independent businesses, reported that its Small Business Optimism Index edged higher to 93.9 in December from 92.5 in November.

At the beginning of 2013, the index posted a reading of only 88.9. However, December’s reading is lower than three other readings during the year. Since the recession technically ended in 2009, the average value of the index is 91, which is eight points below the 35-year average.

“While there has been no sign that a real recovery has begun, we can be encouraged that the economy is at least crawling forward and not heading in reverse,” said NFIB Chief Economist Bill Dunkelberg. “Some segments of the economy are showing improvement (manufacturing, construction, professional services), but consumer spending, especially on services (70 percent of consumption), has lagged. Spending on items such as automobiles has certainly increased, however a corresponding rise in hiring has not yet materialized.”

On the positive, five of the 10 index components were positive while only three were negative. Current job openings and expected credit conditions were unchanged from November. Small businesses expecting the economy to improve jumped by 9 points, logging the biggest gain in the index. Owners increased employment by an average of 0.24 workers in December, the best reading since February 2006.

Small businesses are still most concerned with taxes and government regulation, mostly unchanged from a year earlier. Looking forward, politics will likely hinder optimism. “Two monthly advances could be the start of a more positive trend, but there are many threats to improvement, including the majority of respondents feeling the current climate is not ‘a good time to expand substantially’ blaming the political climate, something that may not improve in an election year,” explains Dunkelberg.

He adds that, “Obamacare will continue to generate issues for small business owners as well as individual consumers. And the national debt continues to rise with another fight to increase the debt ceiling looming once again. The uncertainty that has contributed to our slow recovery is clearly still present — making any advances shaky at best.”

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